Reading for Angel Investors

September 16, 2016

The National Angel Capital Organization has released its first comprehensive Canadian book on Angel Investing as part of NACO Academy. Author Dr. Steven Gedeon takes a deep dive into Angel Investing, the result is an informative, engaging, and useful reference guide for anyone interested in learning about this growing community. We reached Dr. Gedeon in Germany, where he was guest lecturing this past summer, to ask him about the writing process and the finished product.

A Practical Guide to Angel InvestingWhat was the process for writing the book A Practical Guide to Angel Investing: How to Achieve Good Returns?

First of all, I tried to look at everything that was previously written on the subject. I wanted to make sure I read up on anything that anybody else had ever said about Angel Investing in Canada. The next step was to interview various Angels and experts within Canada. To date there hasn’t been a lot written in Canada and one of NACO’s missions with this book is to make sure that a Canadian perspective on Angel Investing exists. There’s a long list of people I interviewed for material, and then of course, there’s my own experience in Angel investing and running an Angel group.

Why so few books on Canadian Angel Investing?

I would say that Angel financing in general was unheard of 10 years ago. I remember a conversation with Dan Mothersill, the guy I dedicated the book to. He used to be the President of the National Angel Organization and would complain all the time that he would approach politicians and bureaucrats and try to explain to them what Angel financing was. He used to say, “They just don’t get it, they just don’t get it – they know what venture capital is and they just don’t get Angel investing.” I said, “Dan you have failed positioning 101, you should rename the organization the Angel Venture Capital Organization.”

It is still a relatively small target market, so we couldn’t get a publisher. That’s one reason why NACO paid for it.

What did you find most interesting while researching and writing the book?

The biggest insight that came partially from the interviews, but also from general trends and what’s happening in the world today, is the idea of the quick exit – the idea around investing in an organization and giving it enough money to get acquired. That didn’t just come from the Angel financing world, it’s also gaining momentum in the VC space and in the technology commercialization licensing area. Angel investor Benton Leong talks about this in depth in chapter six. I would say this concept is probably the most transformative.

How can Angels help their portfolio companies get that early exit?

This is where I think Angels are almost better than CEOs. Angels are typically involved in 5, 10, 15, 25 companies, whereas a CEO is only involved in one company, and maybe in certain instances a second. The Angel can develop some real expertise in raising money and getting companies acquired, which is a skill that a CEO often lacks.

You know if a CEO has raised a round of financing that they have some experience with fundraising, but it’s generally much narrower in scope than that of an Angel investor. On the other hand, an Angel is doing deals all the time so they have more experience and better experience in this area. Angels are better at raising money than CEOs and Angels are better at getting acquired than CEOs. Angels are in some ways better than CEOs at running companies, too. That’s really where a lot of the value creation is; the coaching and mentoring and sitting on a board. I think I say it in the book – anybody can give their money away, but it’s about growing the company and getting it acquired. That’s really the key to value creation.

What makes a great Angel, what should you watch for?

I think what happens within an Angel group is you have lead investors and very experienced investors. Any Angel group in Canada can get a unicorn or that big success story. It’s a matter of luck, timing, and being in the right place at the right time. In terms of who to watch; watch pretty much anybody that’s done more than 10 investments.

How are Canadian Angels different?

Canadian Angels work in groups. I would say that is the single biggest thing. The Angel group network has also professionalized. It’s nice for Angels not to be out there getting calls from thousands of random people. For every 50 emails, one or two of them are bound to be nasty, and who needs that in their life?

It’s easier to have a group manager be the public face and to be in charge of the initial screening. The group manager can communicate the expectations of the group and help the pitching entrepreneurs, for example, “The Angels make their own decisions, I’m just going to help you do your best pitch.” It’s a very collaborative environment and a very Canadian way of doing things. NACO and the NAO have transformed the Canadian landscape – we didn’t have any groups like them 10 years ago

What will Angel Investors learn from your book?

I’m talking to intelligent, wealthy, successful people. I try to be as clear as possible – your mom could read it and understand it.

What chapter stands out for you?

The chapter that will probably be of most interest to experienced Angels is chapter three – Pick Good Companies. It includes due diligence and discusses negotiation. The entire world of entrepreneurship education has changed in the last 5-10 years, so I spent some time talking about these new ways of thinking about what makes a company successful.

Do you think this is a good guide for entrepreneurs if they are looking for Angel investors?

Absolutely. It is definitely beneficial to an entrepreneur, but that’s not our target. If it was, I would have spent more time talking about how not to piss Angels off. The fact of the matter is, these are high net-worth individuals – they don’t have to give away their money, they could go sailing or golfing instead. Venture capitalists have to deploy their capital, so they put up with a certain amount of BS because spending money is their job. If they don’t spend their money they get fired. So, had this book been targeted more towards entrepreneurs, I would have had more content, and maybe some stories around that.

As an Angel investor expert, what is your advice to entrepreneurs?

My advice for entrepreneurs is that investors like to work with honest people that they genuinely like. No one thinks that you’ve got the greatest plan in the world, and nobody believes half of what you say. Instead, what it comes down to for investors is whether or not they trust you with their money, and if they trust you enough to develop your current plan to a version that actually works.

Don’t be arrogant – you’re wrong in about half of what you say. Just say, “This is what I know and this is what I don’t know. I need some money and I want to work with you. I’m a nice guy and I want to keep you informed.” That’s what investors want in an entrepreneur.


 

About the author

Dr.  Steven Gedeon is a highly-regarded entrepreneurship educator and expert who has founded or led over a dozen private, public, venture capital, and non-profit organizations; published over 100 articles, reports and patents; and delivered over 100 public speaking engagements and on-line videos on personal leadership, success, motivation, negotiation, entrepreneurship, experiential learning and best practices in teaching.